HSBC 2006 Annual Report Download - page 66

HSBC HOLDINGS PLC
Report of the Directors: Business Review (continued)
Rest of Asia-Pacific > 2006
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the Middle East, IT expenditure rose as HSBC
introduced a new internet banking infrastructure,
implemented HSBC’s WHIRL credit card system
and made major updates to customer relationship
management software.
Largely driven by a strong performance in
HSBC’s strategic investment in Ping An Insurance,
which reported record results in 2006, income from
associates rose by 59 per cent. In Saudi Arabia there
were buoyant revenues from stock trading and
investment business, particularly in the first half of
2006 although, subsequently, turbulent local stock
markets affected investor sentiment and contributed
to lower income in the second half of the year.
Commercial Banking reported a pre-tax
profit of US$1,034 million, 25 per cent higher than in
2005. Pre-provision operating income increased by
25 per cent, driven by higher deposit and lending
balances and widening liability spreads. The
migration of routine activities to lower-cost channels
helped to mitigate business expansion costs, and
operating expenses consequently increased by 21 per
cent. The cost efficiency ratio improved by
1.4 percentage points.
During 2006, HSBC focused on developing its
cross-border business banking activities and
increasing its presence in the small business market,
supported by investment in delivery channels and
increased promotional activity. International business
banking benefited from the strong performance of
HSBC’s two regional alignment programmes,
centred on mainland China and the Middle East,
together with the establishment of International
Business Centres in seven sites including Australia,
mainland China, India and Taiwan. In addition, new
branches in mainland China, India, Malaysia,
Bangladesh and Sri Lanka were complemented by
enhancements to internet banking services in
Malaysia and India and improved self-service
terminals in a number of countries. The launch of
HSBC’s inaugural global Commercial Banking
advertising campaign, increased local marketing
activity and the reorganisation of business
development teams throughout the Asia-Pacific
region contributed to an 8 per cent increase in
Commercial Banking customer numbers to
177,000, with particularly strong growth in
Malaysia, mainland China and India.
Net interest income rose by 33 per cent to
US$848 million. Higher customer numbers
contributed to increased average asset and liability
balances, while interest rate rises led to wider
liability spreads, partly offset by narrower asset
spreads.
Interest rate rises also contributed to higher
demand for deposit products and liability balances
increased in a number of countries, most notably the
Middle East, Singapore, Taiwan, Malaysia and India.
In the Middle East, HSBC successfully initiated a
targeted marketing campaign offering preferential
savings rates to selected customers while, in
Singapore and Taiwan, enhanced sales incentives
contributed to growth in liability balances. In
Malaysia, expansion of the branch network together
with fresh marketing campaigns, competitive pricing
and product enhancements increased customer
numbers and led to a 31 per cent rise in average
liability balances. In India, current account and
deposit balances increased by 40 per cent, partly
from liquidity chasing new IPOs, which surged in
line with strong local equity markets.
In 2006, HSBC successfully launched a number
of initiatives designed to increase asset balances
throughout the Rest of Asia-Pacific region to deploy
the additional deposit base being attracted. For
example, in Malaysia, television and press
advertising helped trigger a 31 per cent increase in
average non-trade lending balances. ‘Trade and Save’
marketing campaigns launched in Malaysia and India
in the wake of higher regional trade flows, offered
customer incentives designed to expand HSBC’s
market share in trade lending. Targeted incentive
programmes were also launched in Singapore, Sri
Lanka, mainland China, South Korea and Indonesia.
In the Middle East, strong demand for credit
underpinned by robust economic expansion resulted
in a 26 per cent rise in average lending balances.
Net fee income rose by 7 per cent to
US$330 million as volume-related increases in trade
fees were recorded in the Middle East and India.
HSBC in India also benefited from higher fees from
lending activities, reflecting growth in the number of
borrowing customers, while payments and cash
management fee income rose in the Middle East.
Trading income increased by 25 per cent. In the
Middle East, HSBC continued to invest in its
Commercial Banking treasury business to support
an increasingly international customer base. As
customer demands became more sophisticated,
15 new products were launched in 2006, while higher
marketing activity and the establishment of an online
e-trading platform also contributed to a rise in
customer trading volumes. Increased hedging activity
among Commercial Banking customers also led to
increased foreign exchange earnings in India and
Malaysia.
The transfer of the majority of HSBC’s Asian
card acquiring business into a joint venture with